Journal of the Operations Research Society of China ›› 2024, Vol. 12 ›› Issue (1): 215-241.doi: 10.1007/s40305-023-00524-x

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  • 收稿日期:2023-03-12 修回日期:2023-11-08 出版日期:2024-03-30 发布日期:2024-03-13

Structural Stability of the Financial Market Model: Continuity of Superhedging Price and Model Approximation

Sergey N. Smirnov   

  1. Faculty of Computational Mathematics and Cybernetics, Lomonosov Moscow State University, Moscow, 119991, Russian Federation
  • Received:2023-03-12 Revised:2023-11-08 Online:2024-03-30 Published:2024-03-13
  • Contact: Sergey N. Smirnov E-mail:s.n.smirnov@gmail.com

Abstract: The present paper continues the topic of our recent paper in the same journal, aiming to show the role of structural stability in financial modeling. In the context of financial market modeling, structural stability means that a specific “no-arbitrage” property is unaffected by small (with respect to the Pompeiu–Hausdorff metric) perturbations of the model’s dynamics. We formulate, based on our economic interpretation, a new requirement concerning “no arbitrage” properties, which we call the “uncertainty principle”. This principle in the case of no-trading constraints is equivalent to structural stability. We demonstrate that structural stability is essential for a correct model approximation (which is used in our numerical method for superhedging price computation). We also show that structural stability is important for the continuity of superhedging prices and discuss the sufficient conditions for this continuity.

Key words: Uncertainty, Structural stability, No arbitrage, Continuity of superhedging price, Compact-valued multifunction, Financial market model approximation, Trading constraints

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